The Art of Making Reform Happen: Learning from Each Other

Opening remarks by Angel Gurría, OECD Secretary-General, delivered during the annual meeting of Senior Officials from Centres of Government on “The Political Economy of Reform: Ensuring Stakeholder Support”.

25 September 2008 , Mexico City, Mexico

Good morning Ladies and Gentlemen:

Welcome to our Annual Meeting of Senior Officials from Centres of Government.

I would like to start by expressing my gratitude to the Mexican Government, and in particular to Patricia Flores-Elizondo, Chief of Staff of the President, for hosting and chairing this meeting. I am familiar with the Mexican hospitality and I have no doubt that you are already feeling at home, starting with last night’s event at the Chapultepec Castle.

This network is becoming more and more important.

Like never before, our countries are being confronted by a combination of policy challenges of unprecedented size and complexity.

As we gather here today, our governments are having to deal with the biggest financial crisis since the Great Depression. This includes disfunctional financial markets, plummeting housing prices, high and volatile energy and food prices, the return of inflation. All of this against the backdrop of global challenges, such as climate change, ageing, migration, and growing inequalities, to mention only a few. In addition to the problems of development.

In these challenging times, meetings like this one become all the more important, as it is always very useful to know what other governments are doing; how they are reacting and coping with the turbulence themselves. But also because the solutions to all these problems demand important reforms; and this is an area where all of us have valuable experiences to share.

As Senior Officials of our member countries’ Centres of Government, you are at the epicentre of the decision-making process. You participate, directly or indirectly, in designing, promoting and implementing reforms in a wide range of fields, and you have to be at the forefront of international discussions. You are also at the forefront of efforts to achieve the necessary coalitions to approve reforms. This is why the issue of the Political Economy of Reform was chosen as the main topic for this gathering. The Centres of Government are also the place where sequencing, whole-of-government, prioritisation of reform takes place.

Last year we discussed the importance of delivering on our promises as governments, and we agreed on the relevance of building stakeholder support around well designed reforms, to reach our policy goals. This year, as a natural progression, we want to discuss with you how to make reform happen.

The political economy of reform is becoming an area of the utmost importance, since economies have to evolve to cope with changing environments. Reform is not an end in itself, but a means for more prosperity and greater well-being. Therefore, a government’s capacity to reform is a great comparative advantage, not only for itself, but also for citizens and for the country as a whole. Governments which are successful at reforming empower their people to make the most of globalisation, creating a favourable environment for education, for business, for innovation and for sustainable development.

At the OECD, we have enough empirical evidence to show how countries that advanced with reforms gave their economic performance a strong push.

Countries like Ireland and Finland managed to boost employment levels by updating their labor legislations, following the recommendations of our OECD Jobs Strategy back in 1994, when there was massive unemployment in our member countries.

Sweden’s or Australia’s early efforts on regulatory reform in the 1990s resulted in strong macroeconomic performance with high rates of growth, low unemployment and stable inflation. Today, we promote Australia’s experience in a “Competition Toolkit” (we are already working with Mexico on this) which we presented recently at a meeting of APEC in Australia this summer. Australia has estimated an average increase of 7 000 Australian dollars in households’ annual incomes as a result of action in the area of competition policy.

The liberalisation strategies of Poland and Slovakia in the 1990s are also full of experiences on how economic reform can unleash growth.

On the other hand, avoiding reform might seem an easy option, as not doing anything will be safe, but it comes at a high cost. The current subprime crisis is a painful example of what happens if we don’t keep pace with changing realities, through reforms and upgrading the regulatory framework of an industry or a sector.

When regulation does not evolve as fast as innovation, we open a dangerous gap. The rules of the game cannot fall behind to the creativity of the players. Financial innovation can be a fantastic economic enhancement, but it needs to operate within a stable, predictable forward looking regulatory framework.

The current context also shows that reform is needed not only at national level, but also at the international sphere. Global governance, to deal with global issues, should be strengthened to support domestic efforts. Most stakeholders now agree that our global financial system needs deep regulatory reform.

As responses to the current crisis are being discussed in the US, we could not agree more on the urgency to approve a rescue package, as it will avoid a financial meltdown with rather direct economic consequences. We have put out a declaration from OECD about the need to take action. But again, right now, the great secret seems to lie in the political economy of the package, as the issue becomes increasingly politicized. Once the immediate challenges are addressed, we will need to go back and focus on the regulatory, supervisory and market failures that led to this outcome.

OECD studies show that an economic crisis opens the doors to introduce deep reform. But the question is: do we have to wait until a crisis hits our economy to reform or to win support for reforming? We think not! We have to do better.

The size of the crisis is so huge that we have to do better, we should not have to wait until it is critical.
Rescue packages tend to be more costly than timely reform. The better we help our voters and their representatives to understand this logic, the broader their support for our reforms will be. Stakeholders must have a clear understanding of the problems, but also of the costs and benefits of solutions. This is an area where the OECD analysis, statistics and publications make a key contribution. Reforms need practical examples, as well as advocates. Preferably, success stories, although sometimes even stories of failure.

Our OECD work shows that significant reform requires a confluence of two factors that do not often come together: first, a broad-based popular sentiment that “things have to change”; and second, leadership that is able to translate this broad dissatisfaction into concrete reform proposals.

We think you can make a significant contribution to building this needed leadership.

The OECD can support the Centres of Government in helping decision makers deliver successful reforms through a wide variety of instruments: one is our benchmarking studies Going for Growth which follows progress in structural reform. We also have the Programme on International Student Assestment (PISA), which has become a hallmark. We have organised international seminars on reform experience (already organised in Mexico, Finland, Portugal or Austria). We have also started a series of OECD reports, such as the recent “Getting it Right” that we produced for Mexico; the study “Le Pari de la Croissance” that we prepared to support the Attali Commission in France; or the Public Policies report on Hungary prepared at the government’s request. In Austria, we organised a seminar on Health, and in Portugal we worked on labour markets with the Prime Minister. Of course, we don’t tell countries what to do, but we share what others are doing. We are ready to help any time we are asked.

We have a comparative advantage on spotting the “what” of reform. We measure and benchmark reform progress with sound data and evidence-based analysis. We help our member governments to create a solid evidence base for reform, working in practically all domains of public policy.

But now we have been asked to help countries also with the “how” of reforms, not just the What. So we have put together an ambitious project on Political Economy of Reform. And it is run by DSG Aart De Geus, and he knows about making reform happen. And it is precisely here where we think that your experience can be of much help, and actually, we will count on your support in the preparations of next year’s report on how to make reform happen, and to be the key OECD advisors to move this initiative forward. We need your help. Typically at the OECD, when we start a new project, we create an advisory board with the best experts on the topic. For this new project, we already have this group, which is you, who are also the incumbents. Nobody is better placed to help us with this initiative than the Centers of Government Network. We have high expectations on your contributions and input.

We all know that there is no standard recipe for delivering change. But there are some common factors distinguishing successful from not so successful reforms. Today’s discussions can help explore these factors more in depth.

Ladies and gentlemen,
I would like to conclude by stressing the importance of this Network as a win-win partnership.

Throughout these meetings, we want to help you identify the best practices in building stake-holders support; in moving reforms forward; in implementing these transformations, in making reform happen. We want to bring you closer to the work of OECD and explore together how we can be of greater help to you and also how you can help us. We can help you make reform happen.

In exchange, we can benefit from your experience and your whole-of-government perspective, your day-to-day knowledge and your opinions about the best ways to overcome obstacles while promoting deep economic and social reforms. We want to know your stories, your struggle in building broad support to transform policy decisions into better social realities.

In this changing, interdependent world of ours, reform is the DNA of progress and multilateral co-operation the only way forward. The OECD wants to be part of your solution.